Stocks advance after GDP report

Thursday

Oct 30, 2008 at 11:11 AM

NEW YORK (AP) — Wall Street was feeling more upbeat Thursday after a government report showed the economy contracted in the third quarter by less than expected and after the Federal Reserve’s second interest rate cut in a month. The major stock indexes jumped more than 1.5 percent, including the Dow Jones industrials, which rose 150 points.

TIM PARADIS

NEW YORK (AP) — Wall Street was feeling more upbeat Thursday after a government report showed the economy contracted in the third quarter by less than expected and after the Federal Reserve’s second interest rate cut in a month. The major stock indexes jumped more than 1.5 percent, including the Dow Jones industrials, which rose 150 points.

The Commerce Department reported that the nation’s economic output was the weakest since the third quarter of 2001, but it wasn’t as bad a showing as Wall Street had feared. The department said the gross domestic product, the measure of all goods and services produced within the U.S., fell at a 0.3 percent annual rate in the July-September quarter, rather than 0.5 percent as expected.

Wall Street had a mixed finish Wednesday after the Fed’s decision to lower its fed funds rate by a half-point to 1 percent. Many investors had hoped the market would build on an 889-point surge in the Dow Jones industrial average on Tuesday. But the buying momentum seemed to reappear Thursday after the GDP report and the Fed’s second interest rate cut since Oct. 8.

Michael Strauss, chief economist at Commonfund, said Wall Street was relieved that the GDP figures weren’t worse and that, more broadly, investors are drawing some confidence from the government’s array of efforts to revive the credit markets as boding well for a weak economy.

“I think it’s sort of ’What do you have to do to get someone back from cardiac arrest?’ You have to shock them pretty hard and sometimes you have to shock them a couple of times. I think that’s what going on here,” he said, referring to steps like the Fed’s rate cuts and government cash injections in banks, which began this week.

Strauss contends the programs, most of which have yet to take effect, are creating some appetite for snapping up stocks that have been pounded down this month.

“I think we’re seeing that transition from ’don’t buy’ to ’maybe we buy something,’” he said.

In midmorning trading, the Dow rose 147.11, or 1.64 percent, to 9,138.07.

Advancing issues outnumbered decliners by about 6 to 1 on the New York Stock Exchange, where volume came to 234.3 million shares.

But investors will want to see the gains hold, particularly during the last hour of trading, which has produced many of the market’s recent surges and selloffs. The overall back-and-forth moves on Wall Street have been enormous for more than a month as hedge funds and mutual funds and other professional traders shore up their positions or respond to sell orders.

On Wednesday, the Dow rose as much as 298 points in the final minutes of the session before ending down 74.16 points, or 0.82 percent. Analysts variously blamed reports — later disputed — about a profit forecast at General Electric Co. and investors’ profit-taking.

Investors appeared more hopeful Thursday that the Fed’s rate cut will help stimulate a weak economy and add to the government’s other measures to shore up the banking sector and restore confidence among lenders and investors.

But investors were still drawn to government debt as some jitters remained. The yield on the three-month Treasury bill, regarded as the safest investment around and an indicator of investor sentiment, fell to 0.50 percent from 0.55 percent Wednesday. A drop in yield indicates an increase in demand. Meanwhile, the yield on the benchmark 10-year Treasury note rose to 3.93 percent from 3.86 percent late Wednesday.

The dollar was lower against other major currencies, while gold prices rose.

Light, sweet crude fell 2.27 to $65.23 per barrel on the New York Mercantile Exchange.

Investors seemed unfazed by the Labor Department report that the number of people who sought unemployment benefits last week remained unchanged from the previous week at a seasonally adjusted 479,000. Analysts had expected it would come in at 475,000.